Food tech startups transfer burden of discounts to restaurants

Several restaurants are marking up the prices of dishes on food-ordering websites and mobile applications, effectively increasing the bill before offering a discount on it.Harsimran Julka&Aditi Shrivastava | ET Bureau | Updated: November 04, 2015, 14:56 IST

Yumist has recently hired Rahul Mishra, responsible for kitchen operations who comes from Continental Kitchen, a kitchen manufacturing company.Several restaurants are marking up the prices of dishes on food-ordering websites and mobile applications, effectively increasing the bill before offering a discount on it. Online food-ordering startups rely on heavy discounting to attract customers, burning money raised from investors.

But with funds becoming scarce for many of them, these startups are asking restaurants listed with them to offer the discounts instead, owners of restaurants and online kitchens, ET spoke with said.

This has put food-ordering startups, several of them running out of cash, in a conundrum. They cannot afford to lose customers who by now are used to discounts, but also risk putting off restaurants by asking them to lower their bills, raising questions about the viability of their business models.

A Delhi-based kitchen for Mughlai food said the only way for the restaurant to be visible prominently on food-tech applications, which contribute 40-50% of its business, is to offer heavy discounts.

"Once we stop the discounts, we have seen orders falling to less than 25% on some days," the restaurant owner said, requesting anonymity. "It has become imperative as customers have gotten hooked to them."

The owner of a biriyani specialty chain in Bengaluru said food-ordering startups have asked the restaurant to offer discounts of about 20% on its dishes. "We have been asked by sites… to shell out about 20% discount, whereas it contributes about 10%," this person said, also declining to be identified.

"Adding a commission charge of about 12% per order and a 10% delivery charge, our cost increases to about 40% of the listed price of a dish." ET found that some restaurants had jacked up the prices of dishes by as much as 30% on online food-ordering apps, followed by an offer of a 30% discount.

Foodpanda India, the country’s largest food-ordering website with about 12,000 restaurants listed on its platform, denied it forces restaurants to offer discounts but conceded that "co-discounting has always been a part of our strategy since inception".

"It is not a mandate for the restaurants to offer discounts in order associate or sustain with us," Saurabh Kochhar, chief executive of Foodpanda India, said in an email reply.

"Our contract strictly mentions that restaurants cannot offer higher prices on Foodpanda versus other platforms. However, if we find an issue/flaw, we have a structured compliance process in place and it may also result in termination of services," he said.

TinyOwl said it has a mechanism to check prices from being inflated. "For any restaurant that we get on board, our ground staff collects the menu, scans it and then uploads it on the app. We try to do real-time price checks," said Harshvardhan Mandad, CEO of TinyOwl.